Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

Senate Moves Forward To Extend Tax Breaks For 2014

If you’re still smarting from writing out that check to pay your 2013 tax bill, some relief might be on the way: the tax extender bill is back.

After initially backing away from renewing a number of expired tax breaks (for a list of those provisions which expired at the end of 2013, check out this prior post), the Senate has agreed to consider the provisions again. That’s the good news for taxpayers. The bad news? If they give all of the tax breaks the thumbs up, it would add about $85 billion to the budget deficit.

If you feel like you’ve heard this one before, you have. This notion of letting tax breaks expire – and then extending them retroactively is nothing new. It’s become quite the fashion in Congress to let tax breaks expire so that they can talk about costs saved and then plug them back in – but only for a little while. Most of the time, tax extenders last just a year or two. The current bill would extend the breaks for 2014 and 2015.

The bill, S. 2260, cleverly named the EXPIRE (Expiring Provisions Improvement Reform and Efficiency) Act, is sponsored by Sen. Ron Wyden (D-OR). It was introduced on April 28, 2014, and has moved through the Senate Finance Committee. Today, the Senate moved to consider the bill with only Sens. Tom Coburn (R-OK), Jeff Flake (R-AZ) and Mike Lee (R-UT) voting no.

Here are a few extenders highlights for individual taxpayers:

Teaching expenses. It was almost unthinkable that Congress let this one go: the bill extends the $250 deduction for teachers who pay out of pocket for classroom expenses. The deduction is above-the-line which means that taxpayers don’t have to itemize their deductions to benefit from the tax break.

Mortgage debt forgiveness. Another unpopular move? Allowing the provision which exempts up to $2 million of forgiven debt for underwater homeowners to expire. The break offered qualified homeowners an exception to the debt as taxable income rule. Originally meant to stop the bleeding from excessive foreclosures, the “temporary” measure was enacted in 2007 and has been extended several times.

Mass transit and parking benefits. Every other year or so, Congess decides that it wants to reward those that take transit or vanpool with roughly the same tax benefits as those who drive to work and park. 2014 didn’t start out being one of those years: employer-provided transit and vanpool benefits were only allowed up to $130 per month while those that opted to drive and park could receive up to $250 in tax-free employment related reimbursements. The current bill would bump transit and vanpool benefits up to the same level as parking benefits ($250). The bill would also include bike sharing as a qualified expense for the biking reimbursement.

State and local general sales taxes. The bill would allow taxpayers who itemize their deductions to claim the state and local general sales taxes paid rather than state and local income taxes. This deduction is a big boon for states like Texas that don’t have a state income tax.

Higher education expenses. With student loan relief still in flux, many hope that Congress sticks to its plan to extend the above-the-line tax deduction for qualified higher education expenses. Commonly referred to as the tuition & fees deduction, it allows taxpayers to claim up to $4,000 in above-the-line education expenses so long as you meet certain income criteria.

IRA distributions to charity. Charitable organizations were hopeful that Congress would include the provision that permits an Individual Retirement Arrangement (“IRA”) owner to contribute to a charity directly from their IRA. The provision allows those IRA owners age 70-1/2 or older to exclude up to $100,000 per year from gross income if IRA funds are paid directly to certain public charities. Without the provision, the IRA owner would have to pay tax on the IRA funds before claiming the deduction.

Energy Provisions. The bill would reinstate the 10% credit for purchases of energy efficient improvements to existing homes, including energy efficient windows, an efficient furnace or boiler, and insulation. The total credit is capped.

Learning Research and Development Center, University of Pittsburgh (Photo credit: Wikipedia)

The bill also contains a host of provisions for businesses including extensions for extending Empowerment Zone tax incentives and the renewing the Work Opportunity Tax Credit.

And, just in time for the Preakness, Congress has rushed to extend the three year cost recovery period for all race horses (whew, right?).

Whether it will make it through the Senate is not certain. It’s even less clear how it will be received in the House. The House has been hammering away at its own version of the bill with an eye towards making many of the breaks permanent (as it did with research and development tax breaks recently). The problem, of course, with making these breaks permanent, is that the result is a dip in tax revenues and an increase to the deficit.

Should the priority be to cut taxes or the deficit? The bill, as currently proposed, can’t do both. Expect to see more debate about these provisions in the next few weeks.

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Thanks for the update! This bill also includes an extension for 179D – the energy efficient commercial building deduction, but excludes 45L, the residential and multi-family tax credit. I also disappointed to see that my home state (Utah) representative voted against it!